Market News

Few economic variables capture Nigeria’s collective anxiety more than the naira’s exchange rate. Over the past three years, the currency has undergone one of the most turbulent episodes in its history, plunging from around N460 to the dollar in mid-2023 to nearly N1,740 in late 2024 before clawing back toward the N1,350–N1,450 range in early 2026.

This roller-coaster trajectory has imposed immense pain on households and businesses. Yet, recent developments suggest that the worst may be over and that the naira is entering a phase of fragile stability.

The naira’s ordeal began in earnest when the Bola Tinubu administration launched sweeping economic reforms shortly after taking office in 2023. The decision to unify Nigeria’s multiple exchange rates and move toward a market-determined currency, along with the fuel subsidy removal, was widely applauded by international financial institutions but proved deeply disruptive for Nigerians.

For years, the naira had been kept artificially strong through heavy intervention by the Central Bank of Nigeria, creating distortions and a thriving parallel market.

Round-tripping was the order of the day as businesses and others with privileged access sourced dollars from the official market to resell in the parallel market, pocketing huge premiums. When the CBN support was removed, the currency quickly adjusted to its real market value.

The result was a dramatic depreciation. By late 2024, the naira had fallen to record lows near N1,738 per dollar in the official market and an alarming N1,900 at the parallel market, fuelling inflation, eroding purchasing power, and triggering a cost-of-living crisis.

Indeed, Bloomberg ranked the naira the worst-performing currency in 2024 after its 70 per cent drop in one year.

Businesses struggled to access foreign exchange as costs soared, multinational firms exited the country as orders plunged, and manufacturers faced stratospheric costs of imported inputs.

For ordinary Nigerians, the impact was brutal. Food prices and rent surged, transportation costs doubled, and savings denominated in naira lost significant value.

Yet the story of the naira since then is not solely one of decline. Beginning in 2025, a series of policy actions and structural changes began to restore some stability to the foreign exchange market.

The first was aggressive monetary tightening by the CBN under Governor Olayemi Cardoso.

Interest rates were raised sharply to 27.5 per cent, one of the highest monetary policy rates in the world. While this fiscal tightening was painful for borrowers, the move helped curb speculative attacks on the currency and attracted foreign portfolio investors seeking higher yields.

Second, Nigeria’s external buffers have improved markedly. External reserves have climbed to over $50 billion,  the highest levels in 13 years, with net reserves exceeding $34 billion, up from $3.9 billion when Tinubu took power, providing the central bank with greater capacity to manage volatility.

Complementing this is the country’s growing gold reserve, now estimated at roughly $3.5 billion, accumulated through the National Gold Purchase Programme that purchases locally refined gold in naira.

This diversification of reserves reduces Nigeria’s dependence on dollar-denominated assets and strengthens confidence in the financial system.

Another stabilising factor has been the reduction in foreign exchange demand for fuel and other imports. The massive refinery built by Aliko Dangote is beginning to transform Nigeria’s energy equation.

With the facility capable of producing up to 650,000 barrels of refined petroleum products daily and plans to double capacity in three years, the country’s long-standing reliance on imported fuel, previously one of the largest drains on foreign reserves, is gradually declining. This structural shift could save up to $10 billion annually in foreign exchange.

Capital market initiatives have also played a role. The government and the central bank have issued dollar-denominated bonds locally and introduced reforms to increase transparency in the foreign exchange market. These measures have attracted new inflows and helped clear a backlog of unmet foreign exchange obligations owed to investors and businesses, especially foreign airlines.

Indeed, the FX policy reforms along with the banking sector recapitalisation, strong corporate earnings and FPI inflows reforms, delivered a record capital market performance in 2025, with the All-Share Index rising by 51 per cent and market cap expanding from N62.76 trillion in 2024 to N99.38 trillion.

Taken together, these developments have strengthened confidence in the naira. Undeniably, optimism among some of Nigeria’s most influential economic actors is striking.

Tinubu recently expressed confidence that the exchange rate could approach N1,000 per dollar in the near term, asserting that this could happen in weeks if the CBN stopped market interventions aimed at ensuring currency stability. He warned politicians to stop stockpiling dollars.

Similarly, Dangote believes the naira could strengthen to around N1,100 this year if reforms are sustained. Billionaire investor Femi Otedola has gone even further, suggesting the naira could trade below N1,000 if domestic refining capacity fully eliminates fuel imports.

Their optimism is not entirely altruistic. A stronger and more stable currency benefits industrialists who depend on imported machinery and raw materials, and enhances investor confidence in the Nigerian economy.

For governments, exchange-rate stability is essential for controlling inflation, reducing debt-servicing costs, and restoring macroeconomic credibility.

Still, analysts remain cautious. Most forecasts for 2026 place the naira within a wide band of N1,100 to N1,550 per dollar. Investment houses such as Cordros Securities and CardinalStone Partners expect relative stability around N1,350–N1,450, while more conservative models warn that fiscal pressures and global uncertainties could weaken the currency toward N1,550.

However, economic modelling by Financial Derivatives Company consistently indicates that the naira is undervalued by approximately 30 per cent against the dollar in purchasing power parity terms.

Several factors will determine the naira’s ultimate direction. The first is oil production. Nigeria’s foreign exchange earnings still depend heavily on crude exports, and achieving production levels close to two million barrels per day would significantly boost dollar inflows.

A second factor is fiscal discipline. Persistent budget deficits and heavy debt servicing obligations can undermine confidence in the currency.

Third is inflation: if domestic prices continue to rise faster than those of trading partners, the naira’s real value will inevitably erode.

Equally important is the question of economic diversification. Nigeria remains heavily dependent on imports, from machinery to food products. As long as the country consumes far more than it produces, demand for foreign currency will remain structurally high.

To push the naira toward the psychologically significant N1,000-per-dollar threshold, policymakers must therefore go beyond short-term stabilisation.

The government should accelerate industrialisation policies that encourage domestic manufacturing and import substitution. Reliable electricity supply, improved logistics infrastructure and targeted tax incentives would help local producers compete with imports.

In addition, expanding non-oil exports, particularly in agriculture, technology services and solid minerals, would diversify foreign exchange earnings.

Encouraging diaspora remittances through formal channels and strengthening investor protection frameworks could further boost dollar inflows.

Ultimately, currency stability is a reflection of economic strength. The naira’s recent recovery offers a measure of hope, but it remains fragile.

Sustained reform, disciplined policy and a relentless focus on productivity will determine whether Nigeria’s battered currency, which once traded at 65 kobo per dollar, can truly regain its footing, or whether the turbulence of the past few years will return.